Most of our Self-Directed IRA-owning clients have been investing for a while. By the time many of them reach their peak earning years, they have often amassed a confusing array of IRAs, Roth IRAs, 401(k), 403(b) and SIMPLE accounts with previous employers, and other retirement plans at different investment companies. That’s on top of annuities, personal savings and other assets.
In some cases, accounts can be pretty small. Like the old 401(k) account at the job you held for 3 years in your 20s that you were always meaning to roll over to a Self-Directed IRA but never got around doing it!
The problem with all these accounts all over the place is this:
- It makes it hard to do asset allocation planning.
- Each account generates fees. Even if the fees are only $10-12 per month, it’s easy to rack up five or ten different accounts out there if you aren’t careful, and wind up spending $1,200 to $1,440 per year in monthly statement fees to different accounts for no reason. Any time spent consolidating those accounts to lower recurring fees and perhaps qualify for lower expense ratios, better fund classes or both is time well spent.
- It complicates retirement, because you have to take required minimum distributions from all your accounts. If you miss one, you’ll get stuck with a penalty of up to half of the amount of income you were supposed to have taken out.
- It’s time consuming
- It complicates estate planning.
- It complicates tax filing.
This is why we usually recommend concentrating retirement assets under a single roof as possible. Simplicity just makes life easier. And you can consolidate your assets in fewer custodians without compromising investment diversification one iota.
Benefits of Consolidating Self-Directed IRA Assets
- It saves time. There’s only one or two statements to open every month, and only one or two 1099s each year to send to the IRS. Likewise, you don’t have to worry about accidentally missing one.
- It’s easier to analyze your portfolio. The more accounts you have, the more difficult it is to assess your overall retirement asset allocation. There are tools that can aggregate a number of different accounts, but even the data entry is time consuming. It’s much better to keep just one account, or a few accounts, and work with those rather than juggle five, ten or even more accounts.
- Fees are usually lower. You can save on monthly statement fees, and often get a break on fees because your consolidated Self-Directed IRA account is larger, since many companies offer a discount for larger accounts.
- It’s much easier on heirs. It can be difficult and time consuming for your heirs and/or executor to go through all of your retirement accounts to distribute them after your death and the death of your spouse, if any.
Don’t mix traditional IRA and other tax-deferred money with Roth money. That could create a big headache and cause major taxes and penalties. Speak with an advisor before you execute any rollover transactions
Are you better off in a Roth? Now may be a logical time to roll 401(k) balances to an IRA and IRA balances over to a Roth IRA. This is especially true for those who are relatively young who expect to retire in a higher tax bracket than they are in now. Be sure to speak with your tax advisor before making any moves.
Which custodian has the most favorable fee structure? Some companies charge an expense ratio or assets under management fee, or a combination of the two. Many funds have an additional 12-b-1 fee of 25 basis points tacked on top of the expense ratio. The customer never benefits from the 12-b-1 fee. These fees always benefit the fund company, not you.
Many people are much better off with a flat rate per transaction, similar to what we have here at American IRA, LLC. With a flat rate menu, you essentially order a la carte, and pay only for the transactions or services you actually need, rather than pay an expense ratio to someone else for the privilege of investing your money.
American IRA, LLC is a leading exponent and innovator of the flat-rate fee structure concept, which works particularly well for Self-Directed IRAs and other retirement accounts. By consolidating the self-directed portion of your portfolio with American IRA, LLC, you can potentially save thousands of dollars in fees and expenses every year compared to traditional wrap account or money management fees.
For more information, contact us today at 866-7500-IRA(472), or check out our terrific online research and educational library.